India Markets open in 47 mins

Govt cuts reserve prices of wheat, rice to make space for new crop yield

FE Bureau
wheat, rice

Faced with poor offtake of grains from the official reserves, the government has cut the reserve prices of wheat and rice to clear the space for new crop, as the current food grain stocks with the Food Corporation of India (FCI) is 2.5 times the buffer norm. But, the delayed decision may not help FCI to substantially liquidate its stocks as procurement of the new crop will start from April. For this the agency needs 35 million tonne (MT) of storage space.

The latest official data shows that FCI has 56.51 MT of rice and wheat in its reserves, besides 27.89 MT of paddy (kept by millers) as on January 1, against the buffer norm of 21.41 MT. The stock position in the year-ago period was 45.41 MT of rice and wheat, and 27.41 MT of paddy. The agency has a total storage capacity of 76 MT, including hired ones.

Besides the storage challenge, the surplus grains lying with the FCI also cost huge financial burden on the exchequer. After converting the paddy in terms of rice, the value of total surplus stocks (nearly 54 MT) will be as high as Rs 1.73 lakh crore at the current economic costs. However, the government has been selling the grains at below economic cost under the open market sale scheme (OMSS). The economic costs of wheat is estimated at Rs 2505.67/quintal and, for rice it is Rs 3601.91/quintal for FY20.

For three years in a row, the fiscally stressed Centre has made FCI take National Small Savings Fund (NSSF) loans under sovereign guarantee to ensure the corporation's operations aren't disrupted. However, the Centre's dues to the FCI have now touched an all-time high of Rs 1.95 lakh-crore, and the FCI is being made to borrow more from NSSF.

The reserve price of rice under OMSS has been cut to Rs 2,250/quintal from Rs 2,785/quintal fixed earlier. The reserve price of wheat now stands at Rs 2,135/quintal for fair average quality (FAQ) and at Rs 2,080/quintal for lower quality. The benchmark price was Rs 2,245/quintal for the January-March period of 2019-20. When the OMSS scheme was announced in April last year, the government had fixed reserve price of wheat for each quarter during FY20. The objective was to liquidate 10 MT of wheat with minimum losses-every quarter there was an increase in reserve price from the previous period.

While trade sources said only about 1.7 MT of wheat has been sold under OMSS, official data showed it was less than a million tonne until November 28, 2019. The rice off-take was also very poor as only 616,290 tonne could be sold while the target was to sell 5 MT in the whole year. In 2018-19, more than 8 MT, each of wheat and rice, was sold by FCI under the OMSS scheme.

"Normally wheat stocks with flour millers exhaust by December and for January-March period most of them depend on FCI for their requirements. The government thought of earning big rather than liquidating as this year wheat reserve price was fixed at 22% more than MSP for the fourth quarter, whereas it was just about 12% more than MSP for the same period last year," a trader said.